The Kenya Deposit Insurance Corporation (KDIC) management has by-passed
its board and paid Sh1.5 billion to FTI Consulting, the American firm
that was contracted to conduct a forensic audit at collapsed Imperial
Bank, it has emerged. PHOTO | FILE
By GEORGE NGIGI
In Summary
The Kenya Deposit Insurance Corporation (KDIC)
management has by-passed its board and paid Sh1.5 billion to FTI
Consulting, the American firm that was contracted to conduct a forensic
audit at collapsed Imperial Bank, it has emerged.
The payment, which has been made using the collapsed bank’s
funds, is not only illegal but also raises questions on the management
of assets belonging to companies in liquidation.
People familiar with the matter said the board of
KDIC had declined to approve the extension of FTI Consulting’s contract
and instead demanded a new tendering for the job after it became clear
that the extension would increase the contract fee by more than the
legally approved 25 per cent.
KDIC had initially hired FTI Consulting to
interrogate Imperial Bank’s books at a price of Sh350 million – making
the Sh1.5 billion payment nearly five times the contract amount.
KDIC’s management, however, side-stepped the board
and extended FTI’s contract terms in a move that has consumed a
significant portion of the cash that was available to pay depositors of
Imperial Bank in receivership. Mohamud Mohamud, the acting chief.
executive of KDIC, did not respond to questions on
the subject by the time we went to press. Julius Kipng’etich, the
corporation’s acting chairman, declined to comment on the issue
insisting that the CEO was the right person to respond to queries.
Attorney- General Githu Muigai, who is a member of
the KDIC board, had on Monday promised to respond by 10am yesterdayt,
but had not done so by the time of going to press. “I sit at the board,
but I have an alternate so I may not have these things at the top of
the mind,” Prof Muigai said on Monday while promising to respond
yesterday.
The Central Bank of Kenya (CBK) has previously
defended the pricing of the audit, arguing it was building a tight
case against perpetrators of the multi-billion shilling scam at the
bank. FTI was initially hired by directors of Imperial Bank, who claimed
to have used their initial findings to self-report to the CBK.
The multi-billion shilling payment to the forensic
auditors against the wishes of the board raises questions on whether a
high quality job could have been done at a lower cost.
Disclosure of KDIC’s executive decision to pay the
consultant without a proper pricing mechanism or subjecting FTI to
competitive bidding comes at a time when statutory managers in the
financial services sector have come under heavy criticism for
mismanagement and asset stripping during receivership.
The statutory managers of Blue Shield Insurance
have, for instance, been recently faulted for spending Sh491.4 million
in the five years they managed Blue Shield, which is higher than the
Sh477 million they collected in rent from the underwriter’s Upper Hill
tower.
FTI, a specialised forensic accounting consultancy,
was being paid £338,000 per week, broken down as £155,000 (Sh22.7
million) for on-site investigation, £45,000 (Sh6.5 million) in other
expenses, a retainer of £100,000 (Sh14.6 million), and £38,000 (Sh5.5
million) for strategic communications.
Separate charges
The consultant was also allowed to levy separate charges for data processing at the rate of £170 (Sh24,909) per gigabyte.
“The objective of the audit is not to save money
nor make the country look better, but to help recover the assets of the
depositors,” CBK governor Patrick Njoroge said at a past Press briefing
in response to questions over the pricing of the contract. “We don’t
want to have a charade like Goldenberg investigations – everyone was
excited, but where are those people now?” he posed
The CBK had indicated it would release the findings
of Imperial Bank’s forensic report by end of June but the report is yet
to be released, raising queries as to whether the investigations were
concluded.
KPMG South Africa was contracted to conduct a
forensic audit on Chase Bank, which was put under receivership in April
this year six months after Imperial. The audit firm submitted its
findings to CBK earlier this month.
Shareholders of Chase Bank have previously
complained of being left in the dark on the management of the bank by
the receiver manager, who is expected to exit the position later this
year. The Central Bank of Kenya (CBK) closed Imperial Bank on October
13, 2015, following discovery of massive fraud at the mid-tier lender,
which at the time held Sh58 billion in customer deposits.
Imperial Bank customers were initially allowed to
withdraw up to Sh1 million when the lender first opened under the
management of KCB and DTB. KDIC and CBK then appointed NIC Bank to steer
the refunds process, with the ultimate goal of taking over some
deposits, assets and liabilities of Imperial bank.
NIC Liquidated Imperial’s Treasury bills and bonds
to pay customers up to Sh1.5 million, which covers 92 per cent of the
collapsed lender’s customer base. As at mid last month NIC had disbursed
Sh3 billion to Imperial Bank customers, two weeks into the new
arrangement.
gngigi@ke.nationmedia.com
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